General discussion inc SP movement, page-325

They say successful investing is all about timing and patience.

You mentioned the market cap. It has been on a steady rise since it fell to a low of $6.2m in June 16. A classic example of impatience on steroids driven by the fund managers operations manual. As is evidenced in the last slide the institutions who funded the the pre-production capital expenditure for the plant and equipment and the initial cut back of the giant pit all left the building with their tails between their legs incurring massive losses for their investors, after the copper price started it's fall to $1.90/lb in 2016.


Whilst $1.90 was close to HGO's AISC they were still working in the upper parts of the pit where the strip ratio was higher than the average that was reflected in the AISC, so they had ongoing unfunded capital expenditure for mine development and $13m of debt to service.

They fortunately had hedging that was in the money to the tune of $13m which was earmarked to fund the cap ex. Fortunately with debt covenants broken it was also worth enough when cashed out to extinguish the debt which allowed the board and management to retain control of the company.

The $6.2m market cap was covered by the office furniture and spare parts and investors got everything else for free. I, maybe foolishly, piled in and have been on a massive learning curve since but after a 1.5c fully franked dividend that initial investment has turned out remarkably well.

History almost repeated itself in March 2022 when the copper price hit $4.72 and HGO had an offer of debt finance to start the UG. If they had been able to do that and get hedging at those levels to cover the post production mine development cap ex we could be sitting today with only 1.2b shares on issue and a share price of circa 15c. But that's life in the slow lane and the dreaded covenants could have bought it all unstuck.